Late-Night Headlines
Bloomberg:
- Yields on bonds backed by commercial mortgages fell relative to benchmark interest rates after the government announced that its $1 trillion program to unfreeze credit markets would include older securities. The spread on AAA commercial real estate debt was about 9.8 percentage points more than the benchmark swap rate today, down 2.53 percentage points since U.S. Treasury Secretary Timothy Geithner released details of the plan on March 23, Bank of America Corp. data show. The Treasury will include commercial mortgage bonds in its Term Asset-Backed Securities Loan Facility and extend the program beyond newly issued bonds to revive lending and resuscitate the economy by cleansing financial institutions of so-called legacy assets that have clogged bank balance sheets. Expanding the facility to older debt is “incredibly important” for commercial-mortgage backed securities, said Kenneth Hackel, head of fixed-income strategy at RBS Greenwich Capital. The cost to protect top-rated commercial mortgage debt from default is about 565 basis points, according to a note to clients today from Goldman Sachs Group Inc. in New York, compared with about 747 basis points on March 20. Top-rated commercial mortgage-bond spreads may narrow by as much as 500 basis points in “coming months,” JPMorgan Chase & Co. analysts led by Alan Todd in New York said in a report yesterday.
- Red Hat Inc.(RHT), the biggest seller of the Linux operating system, met analysts’ estimates with its fourth-quarter profit and first-quarter forecast, sending the shares up 8.7 percent in late trading. Profit was 22 cents a share in the period ended Feb. 28, excluding stock-based compensation and other expenses, Raleigh, North Carolina-based Red Hat said today in a statement. That compared with the 20-cent average estimate of analysts in a Bloomberg survey. Sales rose 17 percent to $166.2 million.
- The cost of protecting Asia-Pacific corporate and government bonds from default declined after unexpected growth in US The Markit iTraxx Japan index of credit-default swaps fell 15 basis points to 385 at 10:12 am in Tokyo Australia index was quoted 5 basis points lower at 3455 as of 12:16 pm in Sydney
- Traders trimmed bets the euro will gain versus the dollar on speculation the European Central Bank will lower interest rates to bolster the region’s economies, options show. The euro’s one-month 25-delta risk-reversal rate against the dollar shows that premiums on euro call options over put options fell from record highs. The rate slid to as little as 0.55 percent yesterday, a one-week low, Bloomberg data show. It stood at 0.72 at 11:20 a.m. in Tokyo, from 1.17 on March 20, the most since Bloomberg started compiling the data in 2003. “Risk-reversals have been skewed to euro bulls,” said Koji Fukaya, a senior currency strategist at the Tokyo unit of Deutsche Bank AG. “The European currency should naturally be sold after a sharp surge and may weaken in the long run,” as the pace of Europe’s economic recovery is likely to be slower than in the U.S., he said.
- The collapse of the Czech government threatened a new setback for the European Union’s stalled governing treaty, distracting the bloc’s leadership just as President Barack Obama presses for bolder European steps to confront the recession. Czech Prime Minister Mirek Topolanek is set to tender his resignation today after losing a March 24 no-confidence vote, raising a new hurdle to passage of the treaty by lawmakers in Prague. A setback there may undercut a referendum in Ireland, the only other country that still hasn’t ratified it. The defeat also hamstrung the Czech government midway through its six-month EU presidency, opening a political vacuum in the run-up to European Parliament elections and a battle over top EU appointments in June. “The European Union over the next three months risks being where the United States was in the last three months of 2008 -- a lame duck waiting for elections and a new setup, institutionally and politically,” said Antonio Missiroli, chief analyst at the European Policy Centre, a Brussels research group.
- China Shipping Container Lines Co., the country’s second-largest cargo-box carrier, said 2008 profit tumbled 99 percent as a global recession caused rates to tumble. Net income fell to 42.97 million yuan ($6.3 million), from a restated 3.23 billion yuan a year earlier, the Shanghai-based company said in a statement to Hong Kong’s exchange today. That compares with the 443.4 million yuan average of seven analyst estimates complied by Bloomberg.
Wall Street Journal:
- A top official in organized labor acknowledged that some changes to controversial legislation that would make it easier for unions to organize might be needed in order to attract more support from lawmakers.
- Intel Corp.'s(INTC) next chip for server systems, expected to be formally introduced Monday, is arriving at a critical time for recession-wary technology companies.
- President Barack Obama urged Democrats on Capitol Hill Wednesday to maintain party unity and preserve his fiscal priorities, as the House and Senate began moving on companion versions of a $3.6 trillion budget that would make good on his promise to cut the federal deficit in half. Congressional leaders are sticking broadly to the priorities outlined by Mr. Obama in a budget message sent earlier this month to Capitol Hill. But important differences are emerging, as tensions simmer among Democrats over issues such as climate change and health care, as well as spending. Notably, Democratic leaders in both chambers are pushing packages that call for narrower deficits and less spending than proposed by the White House. And those levels could go lower, especially in the Senate, where moderate Democrats from conservative states will be an important factor in the debate on the floor next week.
MarketWatch.com: NYSE Euronext (NYX) announced that its wholly-owned subsidiary, NYSE Arca, today began trading the IQ Hedge Multi-Strategy Tracker ETF under the ticker symbol "QAI." The ETF is sponsored by IndexIQ Advisors LLC. The IQ Hedge Multi-Strategy Tracker ETF is the first ETF to track hedge fund replication and the first product by IndexIQ Advisors to list on NYSE Arca.
NY Times:
- The Obama administration will detail on Thursday a wide-ranging plan to overhaul financial regulation by subjecting hedge funds and traders of exotic financial instruments, now among the biggest and most freewheeling players on Wall Street, to potentially strict new government supervision, officials said. The Treasury secretary, Timothy F. Geithner, will outline the broad revamping of the regulatory system, which goes further than expected, in a hearing on Thursday. The plan, which would require Congressional approval, would give the government vast new powers over “systemically important” banks and other financial institutions that are so big that their collapse would jeopardize the economy as a whole. The government would have the power to peer into the inner workings of companies that currently escape most federal supervision — insurance companies like the American International Group, multibillion-dollar hedge funds like the Citadel Group and private equity firms like the Carlyle Group or Kohlberg, Kravis & Roberts. If regulators decided that a company had become “too big to fail,” as was the case with A.I.G. in September, they would subject it to much stricter capital requirements than smaller rivals and much closer scrutiny of its borrowing levels and its trading partners, or counterparties. But the most striking new proposals, and the ones that may provoke the most heated opposition from the industry, would regulate so-called private pools of capital — hedge funds, private equity funds and venture capital funds — and the gigantic market in financial derivatives, including instruments like credit-default swaps, the insurancelike instruments that allow investors to hedge against bond defaults. Under the administration proposal, hedge fund, private equity and venture capital fund advisers would for the first time have to register with the S.E.C. They would be required to provide the government — on a confidential basis — information on how much they borrow to leverage their investments as well as information about their investors and trading partners. the administration would regulate trading in more exotic derivatives that trade privately, like the credit-default swaps that were used both to hedge against and to speculate on high-risk mortgage-backed securities. These more exotic products have been traded almost entirely in the informal, over-the-counter market that lies outside regulatory scrutiny. The administration would require that all standardized derivatives be traded through a regulated clearinghouse. Traders would be required to provide documentation on their collateral and borrowings. They would also be subject to new eligibility requirements, and their trading and settlement practices would be subject to new standards.
IBD:
- Botox maker Allergan (AGN) shot up Tuesday on reports that drug giant GlaxoSmithKline (GSK) may bid for it.
Politico:
- House Minority Leader John A. Boehner snarled at moderate Democrats Wednesday, but the real bite came from liberal groups frustrated by centrist opposition to Barack Obama’s budget priorities. As Boehner accused Blue Dog Democrats of being “lap dogs” for Obama, MoveOn.org and Americans United for Change, the labor-backed organization that serves as the White House’s chief third-party operation, began airing ads Wednesday urging moderate Democrats in both the House and the Senate to get on board with the president’s budget. Among the targets of Americans United for Change is Sen. Mark Pryor (D-Ark.), who declared the ads “not very helpful.” “The liberal groups need to understand that we are not elected to represent the president,” Pryor said. “We’re elected to represent our states, and we are trying to reflect the attitudes and values of the people who sent us to Washington.” Sen. Evan Bayh (D-Ind.) is also unhappy with the friendly fire. Bayh announced last week that a group of centrist Democrats had come together to negotiate as a bloc with the White House and party leaders on major legislation. He promptly found himself targeted by an ad accusing him of “standing in the way of President Obama’s reforms.”
The Hedge Fund Journal:
- SunGard has launched an online market data service that will help corporate executives anticipate if short sellers are targeting their share price. SunGard’s Short Insights will help CEOs, CFOs and investor relations professionals stay informed of lending activity in the shares of their company, which is often viewed as a proxy for short selling, and also the shares of their competitors on a daily basis.
Reuters:
- U.S. Secretary of State Hillary Clinton said on Wednesday that an "insatiable" appetite in the United States for illegal drugs was to blame for much of the violence plaguing Mexico.
- Intel Corp (INTC) Chief Executive Paul Otellini said IBM's (IBM) discussions to acquire Sun Microsystems Inc (JAVA) are likely to succeed for one ringing reason: Money Talks. During a chat with Intel employees on Monday, Otellini said it is no surprise International Business Machines Corp's interest in the high-end computer maker comes in the wake of a plunge in Sun's stock price.
- The U.S. government's plan to help private investors buy bad bank assets may be a boon for big banks, particularly those that bought rivals last year, but smaller lenders are much less likely to benefit. The plan, known as the Public-Private Investment Program, gives government help to private investors looking to buy loans and securities from banks. But banks are most likely to sell assets they have already written down substantially. That typically means bank loans acquired from another bank, or securities portfolios, two classes of assets that are abundant at some larger banks, and in short supply at smaller banks.
- Shares in Hynix Semiconductor Inc. extended gains by mid-morning Thursday to rise more than 12 percent, helped by a recovery in memory chip prices and the firm's improving outlook. Spot prices of key dynamic random access memory (DRAM) chips rose more than 4 percent on Tuesday, according to DRAMeXchange.
Financial Times:
Short interest on the New York Stock Exchange rose to its highest level since the collapse of Lehman during the month to mid-March and at its highest rate in more than a year as hedge funds increased their bets against the rally in US equities during that period. From February 27 to Friday March 13, the benchmark S&P 500 index rose about 3 per cent, prompting talk among participants of a lasting rally in the US stock markets, which have been battered by the recession. But over that two-week period, as the equity market rallied, short interest rose to 4.2 per cent of all shares outstanding, up from 3.8 per cent at the end of February. The broader stock market rally was eclipsed by several prominent stocks, but short sellers took the view that the gains by these stocks, particularly those most affected by the crisis so far, were unsustainable. For example Citigroup ©, which was down 79 per cent for the year to the end of February, rose 19 per cent over the first two weeks of March. But short sellers appeared to take the view that the gains were unsustainable and increased their short position in the stock by almost five times over that period. In fact Citigroup was the most shorted stock on the NYSE over the period with a short position of 998.7m shares. The second most shorted stock was Ford Motor (F) , followed by General Electric (GE), AIG(AIG) and Bank of America (BAC). US regulators are pondering the best way to regulate the activities of “naked” short sellers whom many blame for mounting bear raids on companies which can artificially drive down their share prices and even push them to failure.
- US retail investors poured close to $250bn (€184bn) into bank accounts in the first months of this year, sharply accelerating a flight to safety as they continued to flee volatile stock markets. Bank savings deposits rose by $246bn to a record $4,343bn in the nine weeks to March 9, according to data from the Federal Reserve. This is more than the whole of 2008, in which savings deposits rose by $229bn. It is not clear where all the deposits came from but in the first two months of the year investors pulled $20bn from stock mutual funds – almost half the total $43bn redeemed during the whole of 2008 – as they appeared to lose confidence in stock markets, according to data from Financial Research Corporation. During the first nine weeks of the year, investors pulled a small amount – $15bn – from savings accounts with a period of notice, in an apparent indication they were reluctant to lock up cash for even short periods of time. The previous record year for a rise in bank deposits was 2002, following the dotcom boom, when deposits rose by $465bn. “During hard times people worry about return of principal, not return on principal,” Mr Biderman said.
- A Citigroup(C) investment management unit is to start fundraising for a new fund that will look to buy up the debt of banks. The new fund under the bank’s fixed income investment management (FIIM) unit will start marketing to investors next week with the hope of raising about $250m, with a mandate for buying up undervalued bank bonds issued by the leading banks, according to people with knowledge of the situation.
TimesOnline:
- Britain’s ambition to become a global leader in renewable energy suffered a major setback last night when the world’s biggest investor in wind power said that it was slashing its investment program. The announcement comes less than two months after ministers backed a string of huge gas-fired power stations, prompting concern that the Government cannot fulfil its promise of a green energy revolution.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (CE), added to Top Picks Live list, target $15.
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Economic Releases
8:30 am EST
- Final 4Q GDP is estimated to decline 6.6% versus a prior estimate of a 6.2% decrease.
- Final 4Q Personal Consumption is estimated to fall 4.4% versus a prior estimate of a 4.3% fall.
- Final 4Q GDP Price Index is estimated to rise .5% versus a prior estimate of a .5% increase.
- Final 4Q Core PCE is estimated to rise .8% versus a prior estimate of a .8% gain.
- Initial Jobless Claims for last week are estimated to rise to 650K versus 646K the prior week.
- Continuing Claims are expected to rise to 5475K versus 5473K prior.
Upcoming Splits
Other Potential Market Movers
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and technology stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
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